Indian IT companies lag in innovation: Phaneesh Murthy

BANGALORE: India's software companies are ill-prepared to cope with the major challenges they are facing, industry veteran and iGate chief executive Phaneesh Murthy has said.

Despite attaining revenues of $100 billion ( Rs 5.6 lakh crore) in information technology and related services, software firms have not innovated adequately and relied too much on cost arbitrage, Murthy, a former head of sales and marketing at Infosys, told ET in an interview.

"We haven't done much innovation. For 20 years, the IT industry has been working on the principle that it can provide cheap engineers who work at cheaper rates."

Murthy's comments come amid slowing growth for software companies, which are seeing clients in their main markets- the United States and Europe - turn cautious about spending on information technology. Software industry body Nasscom has projected that growth for the sector in the year to March 2013 will slow down to between 10% and 14%. At the same time, fundamental technology shifts are taking place as services move to the cloud and the use of mobile devices increase rapidly in organisations.

"Honestly, the most fundamental problems of this industry have not been tackled until now," said Murthy, 48, pointing to the call centre industry which is facing attrition rates of 80-90%.

"It is being handled in a pathetic manner. A proper ecosystem needs to be created."

The trend in the industry, he said, is towards creating applications on demand. And because of the app ecosystem, miniaturisation is also catching on, with programmes being written for mobile devices instead of large computer systems.

"The IT industry has to undergo dramatic transformation from a trading mentality to a manufacturing mentality," he said.

Murthy, an alumnus of Indian Institute of Technology-Madras and Indian Institute of Management-Ahmedabad, is transforming iGate into a corporation capable of competing against the top tier of Indian software companies, including his former employer Infosys.

Under him, it acquired Patni Computer Systems for $1.2 billion, decided to spin off its loss-making staffing services arm, restructured internally and won several large deals.

"I would say that at about a billion dollars, we have started our teenage years. And certainly there is a lot of room to grow. We are playing in a $2 trillion space."

The outlook for the industry will improve in the second and third quarters of 2012 after the first three months in which most clients did not spend from their estimated information technology budgets, he said.

There have been no new projects from Europe in the last 5-6 months, with France becoming irrelevant and the continent "more socialist."

"Europe is kind of dead to me. Other than Germany, most European companies have lost market share globally. There are more Asian companies that are a lot more hungry."

Murthy, who is credited with taking Infosys' global sales from $2 million to $700 million in a decade up to 2002, said he expects iGate to reach the milestone of $3 billion in revenues in 2017. The focus will be on large deals, with the company severing ties with non-strategic and smaller clients.

"I think we have the soul and heart of small company in the body of a large company. We are trying to give our customers the scale they need."